Free economic zone can create a tax «hole» for Mykolaiv region, — Kim

Vitalii Kim: Classic free economic zone can create a tax «hole». Archive photo: NikVesti

The head of the Mykolaiv Regional Military Administration, Vitalii Kim, has expressed reservations about the creation of a special economic zone in the frontline areas. He stressed that in its classical form, such a model could turn into a «tax pit» and lead to budget losses.

This is stated in the article NikVesti «Special economic zone for Mykolaiv: a chance to stop the outflow of business or a risk for the budget».

According to him, the main idea should be to provide tax benefits only to those investors who create new jobs and invest in the development of the region's economy.

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«A free economic zone in the classical sense can turn into a tax «pit». After all, everyone comes here to avoid paying taxes. We have to look through the prism of jobs. Those who invest and set up production in the frontline regions should receive tax breaks on future payments. This is the only way for the zone to become a tool for recovery and not a scheme for tax evasion,» said Vitalii Kim.

He also added that due to the increased military risks in the region, loans are more expensive and banks are reluctant to finance businesses, so additional mechanisms are needed to equalise investment attractiveness with safe regions.

«Yes, a free economic zone is a generalised concept. What does it mean? It means that there are preferences from the state for companies operating in this area. We are already doing this. And we discussed with Yuliia Svyrydenko (Prime Minister of Ukraine) that even the conditions created for investment are equal across the country, but we have more difficulties. For example, due to the risk classification of interbank money, loans are more expensive in Ukraine. Banks don't want to lend to us because there are higher military risks. And there are many, many other things. And it is in this vein that we need to have additional conditions for the frontline regions to balance the attractiveness for investors, because we need to rebuild the frontline region first. This was the focus of the conversation. And it is in this vein that the Association of Frontline Cities will work to level the playing field for investors. This is to our advantage, and we are additionally working personally with all enterprises,» commented Vitalii Kim.

The idea of creating a free economic zone for Mykolaiv has been discussed for over two years. Mayor Oleksandr Sienkevych believes that only special conditions for business can stop the «domino effect» — the outflow of businesses, personnel and tax revenues to safer regions.

According to him, if the conditions for investors remain the same across the country, there will be no point for businesses to operate in a frontline city with high risks.

The Association of Ukrainian Cities emphasises that frontline communities need tax incentives not only at the local but also at the national level. At the same time, the name «zone» is not the key — clear and long-term rules that would guarantee transparent working conditions for businesses are important.